The key legal issues to take you from start-up to scale-up
Starting any new business comes with a steep learning curve, especially as a founder when you often find yourself wearing all the management hats. This is why it is important to deal with the core legal issues early, so that when the time comes to scale-up, your business is ready and in good shape to expand.
‘Carrying out a review of your legal requirements is a sensible place to begin. Then, implementing, referring to, and updating a legal checklist will save costs, reduce risk, and free up vital headspace for you to work on growing the business,’ explains Danielle Austin a Corporate and Commercial Solicitor at Geoffrey Leaver Solicitors.
Legal structure and corporate housekeeping
Sometimes there is a misconception that once your legal structure has been set up, there is nothing further to attend to.
As a limited company, corporate housekeeping such as completing resolutions, dividend allocations and minutes of meetings are necessary to ensure you are complying with the Companies Act 2006.
One of the items on the legal checklist which start-ups tend to overlook or elect to bypass at the beginning of their journey is a shareholders’ agreement. This agreement set out the responsibilities and decision-making rights and obligations of parties, as well as exit and dispute resolution clauses. Having such an agreement in place allows everything pertinent to the operation of your business to be put down in a contract and also provides the framework for growth going forward.
Once the legal structure is secure, the operation of your business will inevitably require terms of business or other contracts with suppliers and customers. These requirements will vary depending on if your business provides services, products, or both:
- product-based businesses will need robust terms and conditions in place which comply with consumer laws to govern the relationship with the consumers; and
- service-based terms and conditions will usually mean putting contracts in place with clients.
Some start-ups may try to save money by creating their own and using competitor versions as a starting point, but this can be a false economy. Each business has a unique set of risks which it needs to manage, and it is advisable to have solid bespoke trading terms in place from the outset.
A key benefit to having these in place as early as possible is that the terms will also direct the day-to-day operation of your business to be consistent with your terms. For example, if your terms say that you will issue refunds within a specified period of time, then you know you will need to set up reminders on your customer relationship management software to ensure this occurs.
For product-based businesses, scaling up inevitably involves increasing manufacturing capacity and expanding distribution or territories via sales agents.
Setting up relevant contracts with new partners will be crucial to ensuring your rights and risks are protected in what are intended to be long-term commercial relationships.
You will need to identify key issues, such as dispute and liability risks, which will be important to set out in both your contracts and working relationships. For example, should a manufacturer take on product recall liability?
These contracts are as much about setting out the terms of trading as they are about considering all the potential pitfalls that may occur and how they ought to be addressed between the parties.
Other specialist areas
Each business is different and as you consider the legal issues which will prepare you for growth, alongside the core commercial issues outlined above, you might also need specialist advice on:
- trademarks and brand protection;
- employment contracts and policies; or
- share incentives.
How we can help
The above list is, of course, not exhaustive. Our company and commercial team is highly experienced in working with start-ups and scale-ups as they progress through the business lifecycle.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.